CarMax speeds past quarterly profit estimates on cost cuts

By Nathan Gomes

(Reuters) -CarMax Inc on Tuesday posted fourth-quarter profit above analysts’ estimates as cost cutting measures helped the pre-owned car retailer soften the blow from a slowdown in demand for vehicles.

Shares of the Richmond, Virginia-based company rose over 9% at $71.81 in morning trade.   

CarMax had in December implemented a series of measures to help cut costs, such as slowing down on acquiring cars for its inventory, trimming marketing and capital expenses, and pausing hiring for its corporate office.

“Our deliberate steps to navigate the pressures facing the used car industry are driving sequential improvements in our business,” CEO William Nash said on Tuesday.

Demand for used cars was dented over the past year due to higher borrowing costs and soaring commodity and gasoline prices, weighing on CarMax’s results.

However, with leasing rates on the rise and new-car prices nearing the $50,000 mark, most consumers have no choice but to seek options in the used-car market, sustaining some demand.

That demand for vehicles and related services helped auto retailer AutoNation Inc post a better-than-expected quarterly profit when it reported earnings in February.

Dealers, who had previously acquired cars at higher rates at the peak of the COVID-19 pandemic, when the supply of new cars was impacted, have now either rolled out discounts on models or are holding onto stock.

There is currently a scarcity of affordable cars on the used market, despite strong demand for lower-priced vehicles, Stephens analyst Daniel Imbro said.

“We did expansive price elasticity testing and determined that we could have sold a few more cars, but we actually would have made less money,” Nash said in a post-earnings call with analysts.

CarMax’s adjusted fourth-quarter profit came in at 44 cents per share, ahead of Refinitiv IBES estimates of 24 cents per share.

(Reporting by Nathan Gomes in Bengaluru; Editing by Pooja Desai)